IMO to open talks on bunker GHG rules amid wide gap of views

Shipping officials from some 170 countries are set to descend on the International Maritime Organization's headquarters in London by the end of this month, hoping to narrow their gap of opinions over how to tighten regulations on greenhouse gas emissions from vessel operations.

But proposals on the table suggest the UN agency's member states still hold widely different views on how to effectively control maritime emissions while limiting the economic impact, and there has been little optimism among seasoned observers.

"We lack agreement on key items, which means that compromise will be difficult to reach in this meeting," nonprofit Transport & Environment's IMO policy manager, Constance Dijkstra, told S&P Global Commodity Insights. "At this stage, it's difficult to be optimistic."

At the center of IMO delegates' debate are what type of "economic" and "technical" measures can help achieve their targets to reduce life-cycle GHG emissions from international shipping by 20%-30% by 2030 and by 70%-80% by 2040 against 2008 levels before transitioning to net-zero shipping close to 2050.

Many shipping companies have publicly stated robust regulations at a global level are essential to kickstart industry-wide decarbonization, with sustainable marine fuels currently much more expensive than conventional, oil-based bunkers.

The August monthly average delivered price for 0.5% sulfur marine fuel oil, the most prevalent bunker type, was $13.24/Gigajoule in Rotterdam, according to Platts data from Commodity Insights. Gray methanol was priced at $18.10/Gj on average, and industry estimates suggest sustainable methanol could at least two times more expensive. Renewable ammonia for delivery into Northwest Europe on a cargo basis stood at $50.02/Gj in August.

"It's imperative that the International Maritime Organization and its member states agree on making green maritime fuels as affordable as fossil fuels," Maersk CEO Vince Clerc said recently on LinkedIn, while calling for the implementation of "a global maritime fuel standard and a pricing mechanism that ensures price parity, levels the playing field, and supports large-scale green fuel projects."

Multiple rules

Among the main proposals of economic measures, the EU and Japan are advocating a GHG levy on marine energy use of $100 per metric ton of CO2-equivalent, Belize and some Pacific nations seek $150/tCO2e, but China, Brazil and some others show little commitment to a levy.

Even if countries can form consensus over such a pricing mechanism in principal in the upcoming talks, intensive discussions are expected to be over whether well-to-wake or tank-to-wake accounting would apply in GHG accounting for bunker fuels.

Moreover, views differ on how the income from collecting levies would be used, with some member states proposing an IMO-managed fund to support the development of low-carbon marine technologies, some seeking to subsidize the usage of alternative bunker fuels, and some wanting to route the money to state coffers of developing countries that could hit be by the energy transition -- with shipping companies expected to push up freight rates when using sustainable fuels.

"A levy would serve two purposes ... One being a tool to mitigate negative impacts on states," said industry group BIMCO's deputy secretary-general Lars Robert Pedersen. "The other to stimulate uptake of green fuels and henceforth others to invest in providing such fuels."

Based on a study by UN Trade and Development commissioned by the IMO, a levy of $150-$300/tCo2e would have the smallest impact on Landlocked Developing Countries and Small Island Developing States by 2050, with a high redistribution rate of levy income to them.

But UNCTAD's methodology and modelling have been questioned, and the Maersk Mc-Kinney Moller Center for Zero Carbon Shipping said delegates' final decision on the levy would be "political" even though the impact assessment is "favorable" towards "robust" regulations.

Meanwhile, member states will also discuss technical rules on cutting the GHG intensity of marine energy in phases until 2050, as well as whether and how ship operators could generate new type of credits from over-compliance and pool, bank or trade them.

Observers said one crucial point as to how effective the rules would be is related to the penalty level, which is supposed to punish those who stay with oil-based fuels.

"As the fuel standard is lowered over time, an increasing amount of a fossil fuel's total emissions [should] attract a cost from the penalty," the Zero-Carbon Center said in an email. "It's the net effect of the levy and the penalty that matter."

Uncertain outcome

Based on the IMO's regulatory timeline, delegates from member states are expected to shortlist some proposed regulations during the 82nd Marine Environment Protection Committee meeting between Sept. 30 and Oct. 4.

Simon Bennett, deputy secretary-general of trade group International Chamber of Shipping, said a good outcome would involve countries principally agreeing on a levy -- now worded as "universal GHG contribution" by some member states -- while leaving the detailed regulatory design for future discussions.

Governments should also make progress on the certification requirements for marine fuels for their GHG intensity, supposedly to be lowered in phase till mid-century, classification society ABS's vice-president for regulatory affairs, Stamatis Fradelos, said.

The IMO is scheduled to have two MEPC meetings in April and October 2025, during which member states will aim to agree and adopt the final version of regulations for implementation from 2027.

Past experience suggest government officials tend to go down to the wire in such negotiations to reach an agreement, if they ever do.

The Zero-Carbon Center said how much the group of countries led by Japan and the EU, and that led by China and Brazil, are willing to compromise with each other during the MEPC 82 could indicate whether the IMO is on schedule.

"If these two groups can converge on a technical element and global price that is 'ambitious enough', this would move us very close to a working agreement [next year]," the center said.